OTTAWA—The tentative deal for an improved Canadian Pension Plan will help thousands of young Canadians better prepare for retirement, but not everyone needed the help.
Ian Lee, a professor at Carleton University’s Sprott School of Business, says workers with generous defined benefit pension plans, including many government and public sector employees, were already on course for a secure retirement.
“The large corporate sector, they also have very good pension plans, by and large,” he added.
Lee called the enhancement of the CPP a “squandering of resources” because reports suggest only around 15 to 20 percent of Canadians are ill-prepared for retirement.
“It’s not that the resources are going to disappear into nothingness, it is just that we’re using resources that are scarce on a problem that doesn’t exist for 80 percent of the population,” he said.
Instead, a more targeted solution was required, Lee said.
While the private sector has moved to shift the risk of pension plans to employees with a move to defined contribution plans, many in the public sector have managed to hold on to those plans.
Under defined benefit plans, the employer guarantees an employee will get a set, pre-defined level of benefits. If the pension fund’s investments don’t do well, the employer has to make up the shortfall.
To avoid that risk, many employers switched to defined contribution plans, where they provide a certain amount towards an employee’s savings, but it’s up to the employee to manage the money—and carry the risk if the stock market tanks. The size of pension the money can buy at retirement isn’t guaranteed.
Nonetheless, those in public sector defined benefit plans haven’t entirely escaped unscathed.
